Dishman Carbogen Amcis Limited (DCAL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you patiently waiting. [ We have it ready and can connect ] call. I now hand the conference over to you, sir. You may take it forward.

Thank you. Thank you, moderator. Dear all, welcome to the conference call of Dishman. First of all, we would -- we all would really wish and hope that all of you, your family members, your friends and your loved ones are keeping safe, in good health and has not been affected negatively by the second wave of the pandemic. We implore you to keep safe and please make sure that simple and basic hygiene is followed by all of us and the people around us. We, as a company, have had the misfortune to see some of our dear colleagues pass away and many family members of many dear colleagues as well. It is hard [ duty ] for us, and we are doing everything we can as a company to support the family of the affected. We have recently done a tie-up with a reputed hospital, where all the colleagues of the company along with their family members will get a fast track line for getting vaccinated at no charge for whoever wishes to get one. The dear colleagues who have lost their lives, the company has decided to keep paying their monthly salaries for supporting their families for at least 2 years. The company will also further communicate with [ deceased ] families to see how best we can further support them in the case like education for children et cetera. It is evident that the fear is not for the virus so much, but more for the lack of the treatment. We are also working on developing in-house capabilities to be able to help the affected colleagues, in case we are not able to procure the hospital beds in time. For that, we have sent 10 high-flow oxygen concentrators from [ government to the site ]. These are very uncertain times, and we are adapting and responding constantly to the daily challenging situation at the best of our ability and we wish the same for you. Now a short update about the progress of the company from the last quarter and for the full year. India started picking up from this quarter as the numbers are reflecting. The 2 virtual client audits -- 2 virtual audits done by the clients that we mentioned in the last quarter. One of the clients has been able to successfully get the approval from their local regulatory authority based on just the audit report. It is indeed very good news, extremely encouraging and motivating, reassuring -- and reassuring for both the company and the client. And we are wishing to be sure that it will be same for you as well. We have also given -- we have also closed the order for the requirement this year and -- at a much higher price than the previous orders. The other client is also confident of achieving the same with their local authority, and we will be foreseeing their orders as well, hopefully, later on in the year. The current pandemic situation is continuing to be a tremendous challenge for us. We've done what we can do, but as always, the people are working extremely hard to close the gaps as fast as possible to the best of their abilities. The challenge continues to the [ the real and best ] upgrade as well that we have planned and things are moving towards that. All said and done, we are slowly but surely moving in the desired path, setting strong fundamentals for the long-term future of this company. We have started evaluating SAP, and we have evaluated several and started to implement a huge quality system management software, which should be our ERP for quality and customer management. By evaluating SAP and implementation of the quality management and documentation software, 80% of the [ software ] will be catered to. We have a lot of orders in hand and the customers -- some customers have not only increased the prices of their orders, but paid 100% advance to book a manufacturing slot. In all of this, Naroda has been a tremendous support and shone like a star. Being a different certain facility, we are hoping the result help in some shape or form through its customers for managing the pandemic globally. Plants, the construction is going on very well for the new formulation facility, and we are so excited about that. Since all of you must have read about the joint investment of CHF 15 million and has been signed between Carbogen Amcis, Switzerland and the client for their product. It is one of the largest co-investments made that we have ever entered into. We are extremely excited to see the potential of this relationship. Switzerland as mentioned in the last quarter, has completed a record-breaking year close to CHF 160 million of revenue. This is the highest revenue in the history of Carbogen Amcis -- since Carbogen Amcis' existence. We are extremely proud of our colleagues and congratulate them with all our hearts and will be another new planning to celebrate this achievement very soon. Netherlands has done better than expected and so as UK. China has achieved another milestone by achieving a [ 82 ]% EBITDA and becoming profitable. We are focusing in the right direction, and we are excited to see it soon. We are extremely thankful for the support given by many of our customers during these challenging times. Their support is not just in terms of money, but helping us technically with the regulatory, and most importantly showing their faith and trust in us in the new mission and vision that the company has, positively overwhelmed us and motivated us beyond measure to achieve the excellence that we are known for. This exact same time, we would without a doubt in our mind, extend to you all as well, our investors, colleagues, their families and all of them globally. Thank you. And with that, I would request Mark to say a few words and therefore Harshil to update on the numbers. Thank you.

Thank you, Arpit. And thank you for that very comprehensive introduction. I would like, first of all, to welcome all of you, wherever you are in the world today to our con call. And I sincerely hope that you're all safe and that you're well. As Arpit mentioned, we are continuing to work through our issues with EDQM. We have been quite successful in moving a number of projects over to our Naroda site, and we've been able to increase the throughput in the revenue of our Naroda sites, which is a very encouraging state of affairs. The COVID issues, unfortunately, have impacted us significantly in terms of how we work. As you will appreciate, we're a global business, and we're used to all working together, traveling to see each other, debating, conferences, meetings, et cetera. And although we've been able to cover a lot of that by video and things like that, it doesn't replace the fact being able to put bodies on the ground in our various locations and work through our issues. So that is continuing to impact us. And hopefully, as we start to emerge out of the restrictions imposed in Europe and the West, we also hope that India will recover and we'll be able to start working together again in the way that we've always been used to. The market remains continuously very buoyant. There is competition out there, but we are still successful in selling our excellent service and our fantastic capabilities. As you'll see from the highlights in the investor pack, we have been able to sign a long-term agreement for co-investment with a customer in Japan to produce their linker and payload. We are exceedingly excited about that project, as Arpit said. It's taking a long time. We have a lot of efforts and people all across the Carbogen Amcis Group to make this project happen. And we've fruitfully signed the deal to enable us to co-invest and to put the facility together to manufacture that commercial linker and payload. We also have a number of other interesting things cropping through. You'll know that vitamin D business, we've been looking and investing in time and effort in ways that we can continue to sustain that business. We are very close to being able to publish results for many -- a number of trials that have been carried out, as I mentioned in the last con call. That's been very good. Our cholesterol sales have been much better than we have anticipated, not really -- not really very, very easy to do for our sales team up there, but they've been able to stimulate new customers and to fill the gaps that we had from one customer, previous customer manufacturing is on cholesterol. And as a results of that, the numbers remained very strong there, and that enables us to continue to invest there to develop new products. So I'm sure there'll be lots and lots of questions about the various parts of the business. So I'm going to hand over to Mr. Harshil Dalal, our Global CEO -- sorry, our global CFO, to talk you through the numbers. And then we can get to the questions and answers. Thank you very much. I look forward to the questions. And over to you, Harshil.

Thank you very much, Mark. A very good evening to everybody. Hope you and your families are safe and are doing well in this tough times. I would like to present to you the financial performance for the quarter and year ended March 31, 2021. For the quarter 3, we had an income from operations, that's our revenue of INR 529 crores as compared to INR 512 crores for the comparable quarter last year, which is a growth of about 3.4%. So even though India did not contribute much to the consolidated revenue, because of significant uplift in the performance that we saw at the subsidiary level, the income from operations were higher than what they were in the comparable quarter last year. The cost for the quarter was INR 166 crores as compared to INR 136 crores in the comparable quarter. Employee expenses were at about INR 220 crores as compared to INR 200 crores, while the other expenses were at INR 55 crores as compared to INR 68 crores. The EBITDA for the quarter was at about 16.7%, and in absolute terms, at about INR 88 crores as compared to 21%, increasing INR 107 crores for the comparable quarter. The depreciation and amortization, that includes amortization on the goodwill that we have on the stand-alone India business, that was at INR 76 crores. While the finance cost was at INR 9 crores as compared to close to INR 20 crores in the comparable quarter. Two important points in the current quarter's performance. We had an exceptional item for the quarter. This was on account of write-off of inventory for one of the customer projects, which we did not move forward. So that entire impairment of the inventory has been accounted for in the current quarter. So that amounted to about INR 22 crores. #2, because of the recent amendment in the income tax act, as far as India is concerned, the goodwill -- the depreciation on the goodwill is no longer and allows the expense as far as the tax books are concerned. So what we have done is that the deferred tax liability, on account of the prolongment for the future, has been written off or provision has been moved for the same in the current quarter. There is obviously no cash outflow on account of this. And what would happen is that as we keep on depreciating the goodwill in the books to the tune of about INR 89 crores each year, as we have been doing for the past 5, 6 years, a portion of the deferred tax liability would get repost. And that will be a positive impact on the tax in the current financial year and going forward. So these are the 2 important points to be noted as far as the quarter is concerned. For the full financial year, our revenues stood at INR 1,912 crores as compared to 200 -- INR 2,043 crores. There's a decline of about 6%, but obviously that was driven by the decline in the revenue from India. And there's a story, as far as the subsidiary performance is concerned for the quarter, the same story stands true for the full year as well. Employee expenses should have increased by about 14.5%. This increase also includes an impact of ForEx. So there was a significant movement in the foreign exchange rate for Swiss franc as well as the U.S. dollar as compared to the last financial year. And as you know, most of our employee cost is in Swiss franc because Switzerland is the one that we have most of our employee expense is sitting. That was a negative impact on account of the ForEx fluctuation, on account of the translation of the employee cost into INR. The other expenses stood at INR 296 crores as compared to INR 325 crore in the comparable year last year. EBITDA margin for the full year was at 14%. That was about INR 274 crores as compared to 24%, equating to INR 487 crores for the comparable year. If you ignore the ForEx impact, the EBITDA stands at INR 302 crores, [ this is reaching close to 16% ] as compared to INR 467 crores in the comparable year, last year. And that represents about 22.8%. The 2 items that I mentioned for the quarter, obviously those stand true for the full year as well. And those are the reasons why we have a negative path for the current financial year. Having said that, as far as cash profit is concerned, we had a positive cash profit of INR 278 crores for the full financial year, which translates into a cash EPS of about 17.7%. Some of the other highlights that I would like to mention is that, as you would have remembered, we did an OFS, there is an offer for sale, in the months of December and January, December 2020, January '21. The total amount rate was close to about INR 85 crores. We are happy to mention that about INR 72 crores has already been infused by the promoter shareholder into the company. So that obviously improves the liquidity, and we were able to return some of the old outstanding advances. The CapEx for the year stood at $49.3 million. As you are aware, we are undertaking a massive expansion in Switzerland as well as in France, one for enhancing our capacities as well as further integrating our business. So most of the CapEx has been incurred in those 2 geographies. Having said that, the net debt as on 31st March 2021 stood at $101 million, which is more or less similar to what we had as on 31st March 2020, before about $100 million. I think I covered most of the financial highlights for the year and the quarter, and we will be happy to answer any questions that you might have. With this, I would like to hand over the call to Mr. Sanjay Majmudar, our Independent Director.

Thank you, Harshil, and good evening to all. Of course, we are in very challenging times because of the second wave of COVID. But it seems, going by the indications available, that this second wave is likely to normalize very soon, hopefully, by the end of the first quarter. And we wish that everybody remains safe. I think very quickly, Harshil, very -- just 2 points I want to highlight specifically with the cost of [ the audit at the center ]. One, as Mark and Arpit mentioned, Bavla has, I would say, come out of most of the issues relating to the EDQM. And it is just a matter of process. Approvals have started to come from most of the key European customers who have concluded their audits, and we should see the ramp-up happening. The only slight negativity is the fact that the speed of ramp up may be slightly impacted due to the negative effect of the second wave. But hopefully, from second and third quarters, Bavla should start to resume its near normalcy in terms of operations. So that's one major problem, which is hopefully behind us again. Second, Harshil explained about INR 100 crores of extra DTL, deferred tax liability provision, which is a noncash outgo, which happened in Q4 has shown that the bottom line has been impacted. This is a very technical provision required under the Ind As because of the fact that since the goodwill is now no longer tax deductible in terms of an intangible depreciation on goodwill. The -- as per the IND AS this onetime DPL has to be provided. I think this is one-time only. And as Harshil explained, over a period of time, this will be reversed, and it should be normalized. I think we are quite hopeful that we should see '21, '22, if not absolutely normal, I would say, near to normal, that is the pre-COVID-19 that is closer to '19, '20 in terms of the overall performance. But of course, it is a bit premature for us to give any specific guidance. But 2 things I'm sure: we will see definitely some growth in terms of top line and a remarkable growth in terms of bottom line with the expectation that both in terms of EBITDA as well as in terms of PAT, it will be a much, much better improvement in '21, '22. I think with this, let's throw the house open for Q&A.

[Operator Instructions] The first question is from the line of Sajal Kapoor from Unseen Risk Advisors.

Just a couple of questions. So in the past, Dishman Carbogen has done some vaccine formulation, I suppose, from your U.K. operations here in Manchester, if I'm not mistaken. So the question is, is there any COVID-19 vaccine CDMO opportunity you are currently working on or discussing with our potential partners?

No. Generally speaking, not directly with vaccines. What we're talking about are some of the vitamin D analogs may appear to have some efficacy in certain areas, but we're not a vaccines company per se. So there was a potential opportunity with some of our cholesterol, but unfortunately, they need a fully synthetic -- a fully synthetic-based cholesterol, and ours is -- we've [ run ] many, many thousands of times, backing the synthesis is derived from [ chipping ]. So, no, we're not a vaccines company. Our focus on COVID is disinfectants and some of the vitamin D analogs, which are the subject to the trials that we've been carrying out, as I've mentioned before.

Sure, Mark. That's helpful. And secondly, when it comes to ADC, or antibody drug conjugate, how would you rate Dishman Carbogen's capabilities vis-a-vis someone like Piramal pharma?

That's a really good question. There were probably -- there were 2 companies that founded, if you like, this ADC business as a service. One was Piramal and the other one is Lonza. I think Lonza probably have the largest capability around the world at the moment. And Piramal has faded away a little bit, but not because of their lack of capability ADCs, but their overall profile in API development. We came along in the second wave. What we've been able to do is to add quite a bit of additional technology and capability. The biggest deal for us in ADCs is not just our capability in ADC, but our capability in all the other things that surround the drug conjugate. And one of the things I would be very -- I'm very proud to say is that we're in the top 5% of companies that are out there who can do the linker payload. And the linker, if you remember from our many, many discussions about ADCs, is probably the most complex part. And we are truly experts in working on those very complex pieces, which link the antibody to the drug. So that's where, I think, in terms of overall ADC, Lonza probably in the lead with their capacity and their 15, 20 years of experience. But we are probably as good as they are in the linker capability, maybe even a little bit better. And with our overall capability, I think we compare quite well. So that's my personal opinion of the market. There are [ equivalent ] companies getting involved in this now, of course. So there are companies that are saying, right, we see a lot of activity there we're going to get involved. And that's what happened when we moved into [ high volume ] in 2002. It's protein compound. We were one of the first 2 or 3 companies really to do it seriously. Now many, many companies claim to do it. But claiming to do it and being able to do it are 2 separate things.

Yes, absolutely. And looking on our pipeline, Mark, I think there's still a reasonable amount of development work. I know, recently, we have gone commercial with one ADC. But I think there's a lot in the development as well. So the pipeline looks pretty healthy from -- just from an ADC perspective, right?

Yes, yes. I mean generally speaking, to be perfectly honest, at the Carbogen Amcis boundary, the pipeline is incredibly healthy. And our challenge is to get through the work and progress it and then capture more work. And a large proportion of that is in the oncology field, as it has been for about the last 10 years. And part of that, of course, is the drug conjugate. So yes, so I think it's reasonable to say that the pipeline is very healthy and the team is very busy.

Sure. And I've got one financial question, maybe for you, Harshil. Looking at our historic gross margins, France, generally speaking, is about 75% and thereabout gross margin business. We have historically achieved 80%-plus gross margins as well. In Q4 this fiscal, FY '21, and the gross margin is one of the lowest we have seen in recent days. But I think that's more of an aberration and coming FY '22, we should kind of mean revert to the gross margins. I know Sanjay Majmudar alluded to getting closer to the 2019, fiscal 2019 financial benchmark by the end of this fiscal. But yes, if you could just help me on the gross margins and the operating margins for this year.

Sure, sure. So basically, in this last quarter, there were 2 things which actually drove the gross margin down. But as we have been saying, we are companies that shouldn't be kind of compared on a quarter-to-quarter basis, but more so on a yearly, if not, bi-yearly basis. So essentially, what happened was that one in Netherlands, the higher proportion of sales was contributed by the cholesterol segment as compared to the vitamin D analog. So just to give you an idea as far as the margins are concerned, the analog margins are almost twice of that of the cholesterol business. So since there was a higher portion of cholesterol, which was driving the revenue, it obviously had an impact on the overall comp as a percentage of sales, number 1. Number 2, In Carbogen Amcis, some of the development, so the development revenue that is that at a lower margin as compared to commercial. So we had higher amount of share of the development revenue in this quarter as compared to some of the other quarters in the current financial year as well as in the comparable quarter last year. So these were the 2 reasons why the cost was higher than, as you correctly mentioned, what historically has been our call. So on a yearly basis, our margin -- if you see, the costs are at about 25%. So we are usually in the range of about 22% to 25% as far as the annual costs are concerned. So there is something that we have more or less in line with.

Yes. So FY '19 numbers in terms of the margins, I mean, are we likely to get closer to those by the end of this fiscal?

Yes. So by the end of this fiscal year, obviously, as the operations in India keep on ramping up, so should be our margins at a stand-alone and at a consolidated level. So obviously, we should be getting there, I would say, sooner than later. But yes, I mean, it will keep on progressing as we get through the quarter and as the revenue from India operations keeps on increasing.

Yes, sure. But at least, can we expect 75% gross margin? Because March 2019, our gross margins were about 76%-plus, and operating margin was 36%. Is it...

Yes. So on a gross margin basis, yes, it would be reasonable to assume that it would be about 75% to 77%.

The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.

Could you share a guidance for your CRAMS India business for FY '22?

So as far as the India CRAMS is concerned, as Arpit also mentioned, we are getting approvals from many of our CRAMS customers, either by way of remote audit or another way. So the revenue should keep on increasing throughout the course of the current financial year. As far as the guidance is concerned, I mean, it would -- maybe it might not touch the level what it was in financial year '19 -- or actually financial year '20. But we should be at least 70% to 80% of that level.

Okay. As much as India CRAMS are concerned?

Yes.

Okay. So is there a downside risk to this 70% to 80% on FY '20 numbers?

Well, the downside risk, really obviously, we are getting the approval, I mean, if there is a delay in getting the -- some of the customer purchase orders that we are expecting or if the COVID situation actually worsens than what it is right now in Europe or in some of these other countries, et cetera. That could be the only risk. But otherwise, about 70% of FY '20 should be pretty much achievable.

Okay. And how should we look at CRAMS Switzerland in FY '22? So do we have capacities to build growth from where we are today?

Yes. We're continually on a program of capital expansion, relatively smaller scale to bridge, if you remember from the previous con call last quarter. We've got a number of, what we call, bridging projects, which enable us to bridge the time between now and then the larger facility will be completed in 2 years -- 2 or 3 years' time. Those projects will liberate capacity. The other thing that we always bank on, and it's just the nature of the business is if any die. So that's why the strength of the pipeline is so critical because if you have a strong pipeline, when a project dies in the clinic or the customer decides to prioritizing other projects, we don't suffer adversely. So we're able to bring another project forward and be able to keep our pipeline moving. So yes, there is capacity. I'd love to have more. However, we do have areas where we do have capacity. So Shanghai, which we mentioned before, is now positively contributing towards the growth of the business. Shanghai has some headroom, which is really good news. And we have R&D headroom in our Bavla facility as well with an excellent R&D team. And so we have areas where we have capacity, and we can focus our efforts on that.

Could you share the constant currency growth for the CRAMS business during the year? Switzerland CRAMS business? So on rupee terms, it grew 18%. What would it be in a Swiss franc term?

So that would be about close to about 8%.

Okay. Okay. And can you also share the same thing for the Netherlands business, vitamin D and cholesterol business?

So that, on a yearly basis, that would be -- so our yearly growth, as reported, is about 5%. So on a constant currency basis, it would be more or less flattish to what it was last year.

Okay. And just one final. What was the split between development and commercial revenues for CRAMS Switzerland business?

So that would be -- so for the full year, it will be close to about 60% development and 40% commercial.

Okay. And it means in favor of commercial revenues, gross margin still expand?

Exactly. But then there will also be addition of new products for development. But we, obviously, would want more products so that we're working in commercial in the future as well. So overall, on the margin front, maybe 1% or 2%, that could increase. But otherwise, this would be more or less the ideal proportion.

Okay. So 60 developmental and 40 commercial is what would continue in the future?

Yes. I mean, it might be 55.5%. And Mark, maybe you can also mention what you think. But I think it's around...

Yes. Historically, that if the ratio between commercial and development goes outside of the 40, 60, either away or the 50-50 either way, that we have a bit of a problem. It's really, really important to recognize that the development work is future commercial work. And if you don't do that and you prioritize the commercial work, one day [ you're just done ]. So although we make money on the development projects, they earn us the right to make the money on the commercials. So you have to earn that right by doing the development work. And a perfect example would be the project we've just signed a deal under the co-investment. That's a perfect example of how it works. If we had not worked on development with that customer, we would not be getting the commercial supply of that linker payload. We would not be getting that commercial supply, end of story. And a lot of customers work that way, not all, but there are lot of customers that work that way.

Are validations... [Audio Gap] Pardon?

Validation would be development.

Okay. Yes. That was my question. Yes.

Yes, validation is development. Commercial is when you're under a commercial supply agreement, and we're routinely manufacturing on a forecast based from the customer of the year when we have a 3, 5-year commercial supply agreement. Validation is still classified as development for us.

But that is higher-margin... [Audio Gap] Sorry? I said validation is a higher-margin business compared to other developmental projects that you would have?

It's the most expensive piece, yes, because you're generating all the data that will put a boundary around the process as it goes into commercial. So that is the one which requires the most resources, the most time and effort, and therefore, attracts the most -- the highest price and the highest margin because it's the most difficult work, frankly speaking.

The next question is from the line of K.V Narayanan from IDFC FIRST Bank..

My question is, if you were to take out, what would be the amount or the quantum of noncash items in the present results, if you were to take out, whether it is the onetime issue or any other noncash FX-related translation-related kind of cost or impact? That is the first question. And the second question is by when do you see the Bavla facility fully functional?

So as far as the first question is concerned, there is a noncash items would be one, obviously related to the depreciation and amortization. Second would be the ForEx impact on an annual basis, which was close to about INR 32 crores. And the total would be the deferred taxes, the deferred tax liability that we have on the P&L. So this piece will be the main items that could be helpful.

Of all the items then what would be the cumulative impact, if you were to approximately, if you had to guess?

So as I mentioned earlier in my presentation, the cash profit for the full financial year comes to about INR 278 crores. So that's the cash profit that we generated for the full financial year.

And the second part, would Bavla, by when do you think that gets online?

So Bavla -- yes. What we are doing is basically because of the impact of the COVID by -- and with the lack of the manpower, which we have done a massive restructuring, we are one by one, reopening the plants according to the need base by the customers and the priorities that we give to the customers for the client projects. So until now, we have opened up 2 plants, which is Unit 8 and Unit 6, which is catering to our internal subsidiaries as well in a major way for one of the biggest [ molecules ] at the subsidiary level. We make intermediate for that. And we are getting to some customers, keep having materials as well because that is the most easiest to do right now without having the approval of the regulatory. On the API side, as mentioned in -- during the production as well, but we are working with individual clients to allow them do virtual audits and help them get approvals from the local authorities, which is higher than the EDQM per se. And if they have the approval from the local authorities, they can give us the approval to manufacture the APIs and start. For that, we have gotten the approval of almost 2 companies, one of which is a major one. And we have started the manufacturing activities for the key starting material and very soon the API in this quarter, for which they require. So that is another Unit 2, which we are starting. Post that, we have 3 more units to restart, which will be done in a periodic fashion as and when we are ready with the people at the facilities, which we are recruiting. And [ further in play, ] the remediation plan that needs to take place of each plant before starting. And that, of course, the regulatory approval by the customers from their local regulatory bodies. We achieved there.

The next question is from the line of Nishid Shah from Ambika Fincap.

Last year's annual report talks about your pipeline in antibody drug conjugates. And last year, we saw at least for multibillion-dollar global deals in ADC, 2 were done between AstraZeneca and Daiichi. One was done by Gilead, buying out for $27 billion, a company predominantly into an ADC and Merck's deal with Seattle Genetics. Can you put some color on this, given the fact that you have a big ADC pipeline globally?

Yes. I can put some color on it. But you know I don't talk about clients. That -- 3 of those 4 clients are actually [ I should say medium size ], and we are actively involved in other clients as well, of course, both in the medium-size pharm, into payloads and the conjugate work. So yes, I think it would be easy for me to talk about clients, but then I'll be quiet because of our confidentiality agreements with clients, and you appreciate pharma industries are competitive. So yes, all I can say to you is that those customers are [ amongst us ].

So, we have a very large ADC pipeline. Globally, I understand there are at least 120 molecules in ADCs, which are fine. And of that, 10% of the pipeline CRAMS partner has been Carbogen Amcis. So can you throw some color on that, Mark? Before I move to another question?

Yes. It depends how you quantify the value of the pipeline. Because we're working on one antibody -- one linker, if you like, for a large company. And that linker is -- has got 4 or 5 different indications. We're working on another one for a smaller company in Europe. And their strategy is to license that linker. They'll use it for their own drug, but they're also licensing it to other customers. So in antibody drug conjugate, there's a lot of licensing deals going on. Seattle Genetics, a company that has a licensing model. They always have one. So they will develop linkers, payloads, drug, and then what they look to do is to partner with other companies, either getting a full partnership or licensing their technology. So there's a real lot of activity in it, but it's quite diverse. And the business models employed are very different from normal CRAMS work that we do. There's an awful lot of licensing deals because of the cost involved, especially with antibody, which is very, very expensive to buy. So yes, what I can tell you is that we are involved in quite a few projects, either at the antibody drug conjugate scale, ADC, full ADC; or doing the drug and the conjugate, the linker. So we have linker payload work. We have linker work, and we have antibody drug conjugate work. The only thing we don't do is the antibody itself. And the thing about the value of antibody drug conjugate is 60% of the cost of that drug is the antibody. And we don't like the antibody. So that's a large proportion of that number you're talking about is related to companies who are manufacturing antibody, biologics companies. And that's an exceedingly expensive business to get into, and therefore, quite costly thing to buy. And that's something we are not involved in. Does that help you a little bit?

Yes, definitely. I understand your limitation on not able to speak on the deals or specific clients. But would you say that we are one of the leading players on the ADC space at this point in time, given our early start on the subject?

Well, I wouldn't exactly give you early ones. Lonza and Piramal were the early ones. We came in the second wave. We were one of the first in high potency, but one of the second wave of companies and do conjugate -- antibody drug conjugate. Difficult to rank us, I would say that as I said before, with a previous question, the linker piece of it, which is the most complicated bit, we're one of the best in the world in that. We have a lot of capability, a lot of experience in that area. We are one of the best as it comes to handling potent compound across the world with our facilities in India and Switzerland. We are one of the best. But with the antibody, we have slightly less experience, okay? So we're not number 1, number 2, number 3. But what sells us as an antibody drug conjugate company is all of the other capabilities we have. That's the one thing that not many other companies have, which is the ability to pretty much make everything. As long as it's chemical, we can make it. [ Then it sells ].

That's very useful, Mark and very heartening to note that we are leaders in linker technology, which is really cutting-edge technology. My other question is on vitamin D analogs where you have been doing Phase III -- Phase II trials. Now what is the progress on that? And have we moved further from Phase II to Phase III. Could you just elaborate a little bit on that?

Yes. I'd be delighted to. So as I mentioned at the last con call, we -- the trials are basically completed for the 2 indications that we're looking at. And over this last quarter, the team, along with our partners, Boston University, have been collating all the data. So there will be a publication in the next couple of weeks, I'm told by the team, in the American Institute of National Health, okay, which is an Emeritus Publication, a peer-reviewed technical publication, where we will present the results and our conclusions from the results. As you will appreciate, I'm not at liberty to say how that panned out for us, but the publication will be out in the next 2 to 3 weeks. And we will then follow-up with a detailed press release alongside Boston University. So if -- and I was hoping it was going to be out last week. And I was told you say another couple of weeks to get it into the publication. It's about the timing of when the publication comes out. So certainly, the next con call, we'll be able to talk about it very openly. But keep an eye out, it's the American Institute of Nutritional Health, and the publication will be out the next week or 2, I'm told. And it will be followed up by an appropriate press release.

So how will it help? Once we do the, let's say, we get Phase II/Phase III done. As I understand, it's being sold as an OTC product in the U.S. market. But calcifediol, which is what I think we are working on, can it be -- how can it help us in terms of improving our realization? And how does it benefit us?

Okay. It benefits us in a number of ways. And the trials are not focused on the same things. So one trial is focused on a small subset of patients who have chronic vitamin D deficiency. And that is an area where ARPU and the rest of the Board have been focusing our business going forward, looking at niche applications where their patients are just not being tended to. So that's something that, as an organization, we want to focus on. The patients of need. That will give us an opportunity to launch potentially our first-ever additional product ourselves. We haven't finalized exactly how we're going to deal with that yet, but that's one option. And we've already manufactured product out of Bavla in [ Sachtales -- ] one of the other trials. The other trial is in COVID. And that one is on the premise that if you strengthen your immune system to the proper levels with calcifediol, which gives you the opportunity to do it in a very sensible way, then you're already protecting yourselves against the reoccurrence of COVID. And the idea is that with a strong immune system, you may catch COVID, but you may not be admitted to intensive care, which is where the biggest risk is. Once you're in intensive care, your chances drop substantially of coming out. So that's the other one of the trials that we look at. So if we can get conclusions to that, then that will stimulate our calcifediol opportunity. And we've had the capability to do large-scale manufacturer of calcifediol in our plant in India. So that could really stimulate along with the manufacturer simulations like subjects. So that's where the sort of longer-term plan is reduce things. That's why we embarked upon these efforts.

Yes. My last question is, is there any other co-investment opportunity on any of the big projects that you are seeing right now? Like the one we announced, a $15 million co-investment by a Japanese company?

Yes. I mean, that product has the potential to be the same size as our largest product that we've been making for a number of years. It has that potential and to be -- I don't know, anything between a $15 million and a $25 million project a year at maturity. And that depends on a number of indications that we currently look at, not other ones that the customer may well be evaluating. So that's why we're so excited, and I had mentioned that we really are incredibly excited about that one. And especially because it's from a Japanese customer, and they tend to be much more loyal, much more appreciative of the efforts. It takes a long time to get to work with Japanese customers. But once you start working with them, they are very supportive, very loyal and great customers. So we're really excited about that one. We have another one, which is hopefully there'll be a press release very soon, which is -- I think we mentioned in the investor pack, actually, the cholecalciferol drug. Well, that's another one, which again, has been an initial co-investment with a customer to help develop the product 2 or 3 years ago, to the point now where we're heading commercial with it. And again, they want to co-invest to create a facility or parts of the facility so that we can lock in supply to them. And again, it's a niche indication. That it's an unmet need indication and little competition in that area for that customers. So that could probably be another nice project. But as I said to you before, and I've been consistent about this, because they're not our products, we're not doing market research on how much we could sell these products for. The customers are doing that. And we're relying on customers' forecasts. And they are as reliable as a British weather forecast, frankly speaking. So I was promised sun today, and it's raining. So you have to learn to take the rough and the smooth in this business, unfortunately. But those are the very exciting project. And if I were a betting man, I simply, probably see quite a nice growth from the first one we talked about, the one that we put in the press release on.

The next question is from the line of [ Vyral Bansari ], an Individual Investor.

Am I audible?

Yes.

Yes. I was going by your presentation, and it's very heartening to know that 12 of 16 projects have gone into validation phase. So my question here is, are these separate from the 6 -- from the 7 already approved in the last 3 years as we -- as Mark told me in the last con call. Seven are commercial, right?

They're cumulative. They're cumulative. So this is for the year-end, we've got 16 gone in. So that's how many we have in the portfolio today that are being prepared for validation now in total.

In total, like there are a few which have gone into commercial, right, in the last 3 years?

Yes. There's a couple that have gone. So the Japanese one, for example, that's now basically a commercial product. And now we're going to be manufacturing some commercial supplies right now, but in the small capability while we build enhanced capability to manufacture full-size commercial. The second one I was talking about with the previous investor. That's another one where we'll start to be making commercial supply soon. So...

Okay. So what is the strike rate here? Like how many of these in the validation phase can get commercially approved?

Actually, the low number would be half, and that's somewhere -- that's half somewhere between a year and 2 years from now. And it depends again on the timelines of the customers. Some of the validations will be relatively straightforward. Some of these that are linker payload and things like that are going to be very complicated validations. And so that is why the number would be, yes, it would be 8, [ pardon me ].

So that's a pretty high strike ratio, yes.

Yes. But don't forget, we're already in Phase III. So we've already had a lot of clinical trials done on them. The customers are reasonably confident that they've got a drug, whether or not other competitive companies can bring out a drug quicker. And that's happened to us a couple of times in the past, where we've been working on a compound, and one of them, famously about 5 years ago, AstraZeneca beat our customer to the market. And all of a sudden, their market share opportunity dropped by about 70%. And so competitive market -- go ahead?

So what is the timeline? Yes, hello, can you hear me?

Hello, yes, I can hear you.

Yes. So what is the timeline from validation to commercial?

Most of the time, it's very quick because some customers will commit to validation before they've got full approval. Most customers will not get full approval until we've got final validation documents, and then there's a submission stage. Customer has to get it in front of the regulatory authority and has to get it approved. Now depending on the indication, for the FDA, for example, if the FDA saying that this drug is a true world beater, then you'll get accelerated approval. And that could be anywhere between 6 and 10 months, maybe 12 months. If there's already a number of drugs in the area, and this one is the number we're working on is competing with that, then it might take longer than that. But generally speaking, most of the things that we're working on are things where there is an unmet need in some way, shape or form. And a lot of them are fast track. But frankly speaking, these days, with the cost of developing drugs, everything is fast track. So we're generating data as quickly as the customer can eat it. And by eat it, I mean, develop it into their CMC section and their submissions for their drug approvals. And on the back end of this, you've got the formulators doing the same sort of work as well, frankly. So we're not formulators in full-scale at the moment. We will be soon. But there's a lot of formulation activities that these customers are performing alongside what we're doing. So there's a huge amount of work. And all that data has to be put together into an appropriate submission when the customers want to go to the FDA with it or the regulatory body, and we've got approval. So most of the time, it's a year or so, I would say.

Are you in any way indicating that we are going for a forward integration, like entering the formulation space as well?

Well, we're already in formulation in France at a small scale, up to about clinical Phase I. We bought that business, say, 10 years ago. And we're now in a position where we are now fully expanding that facility to small commercial scale. So we are forward integrating it. We've seen the opportunity, there is an opportunity, and construction is already well underway...

The real cream lies from the formulation being supplied to the innovator after being commercially approved?

Yes. Yes. We have started this since the usage of prudential sterile injectable facility, where our -- sterile liquids, I should say. So most oncology drugs are delivered in liquids. Antibody drug conjugates are all delivered in liquids. Beyond that, what also gives that capability also gives us some capacity to do internal work as well on our own development projects, which, as I've said before, and Arpit said before, is a target for us, not just to become a service company, we're already a service company, but to extend our capability into a product company. And we have a number of internal projects underway looking at various things, including antipsychotics, controlled substances, contrast imaging agents and things like that. And those will mean formulation. So the project in France to expand the capability will also, in the longer term, help us to deliver those projects to the market as well. The industry is focused is on fee-for-service.

What I gather from your previous con calls is that when a molecule gets commercialized and an oncology product would give you, say, of 60%-plus EBITDA margin and a nononcology product will be a little bit lower. So as the share of this commercial supply increases in your revenues, do you think there is an upside potential to your margins, EBITDA margins?

Well, we're always targeting an up scale in the margins. The fact of the matter is that we are a service company, okay, and we're in a competitive environment. So there's only so far you can drive your margins before you come uncompetitive. And that's a fact we face every day of the week. Employees are analyzing what our competitors are doing and pricing ourselves appropriately. We do not set out to be the cheapest, and we do not want to be the most expensive. But what we want to be is the best value. We have a high cost base in Europe, of course, as you will appreciate. So one of the keys to this, long term, is to continue to leverage the capabilities we have in India and China to enable us to do certain parts of the projects much more efficiently and effectively with scale and with the quality of the employees we have in those areas and free up Switzerland to do the bit where price is less of an issue. And I'm not saying that we want to do things cheaply in India and China because that's not the case. To do great stuff, costs money wherever you are. And the only thing that's done cheap is cheap stuff, frankly speaking. So yes, these are the things that we've got to continue to drive forward. But the game is always to increase our commercial revenue, we need commercial capacity. Once we've done that, we then need to increase our development capability to keep that 50-50 step or the 60-40 step that we spoke about earlier. That's critical because if we had too much commercial and not enough development, then the business is not long-term sustainable. If we have too much development, not enough commercial, then we're not generating enough revenue and EBITDA.

But Mark even if we consider 50%-50%, with the commercial commanding higher margins, there is always an upside risk to the margin, right? Upside potential risk to the margins. Margins can improve from here. Obviously, it all depends upon the success of the molecules that are commercially approved?

Yes. It does. But it also depends on the amount of time, labor and what you have to do to bring more work into the pipeline. So we've increased development capabilities. Over the last 2 or 3 years, we've been increasing development capability. What you see as a result of that increase in development capability is 16 products in validation. That's never been done before, but we've needed to invest in bringing more chemists in, more scientists, more analysts to plow through this work, okay? So now it's translating into -- there's a chance that the leads are going to go commercial. That means we now need commercial capacity, so we have to create that. This is what we go through in this business.

So from what I gather from what you have said is that there is a potential of 8 molecules going commercial out of the 12, just a potential, hypothetical potential here, okay? And with already 3, 4 of the molecules gone into commercial phase in the last few years, I can sense your excitement and why you guys are so excited. That was what I was trying to understand by asking you questions.

That is why we are investing in such a major way, [ Vyral, in Switzerland ] because if you consider even 8 going commercial, there is no capacity in Switzerland to manufacture them. And so it was instrumental for us to invest in API facilities as well to ensure that these projects that are going into validations and when they go to commercial, we are able to capture them to manufacture them. Otherwise, they would go to someone else.

Yes.

Arpit bhai, is it possible to get some part of the work done here in Bavla because that would come on higher margins?

Yes. It would not command higher margins per se. But yes, for sure. One of these projects have a potential of interlinking all our facilities, not just India, but also China and to an extent, even Manchester where we are always going to be -- all of these clients in the first place are coming to us because of our wide location base where their risk mitigation is becoming -- getting catered to, and for the expertise that we have in terms of oncology molecules in particular, which they really want to use in both the location of Switzerland and India. There are some clients, of course, who do not wish to come to India at all, but that is not the majority of the bunch. The majority of the bunch they do want to come to India, and they like the idea of derisking themself within the same company but at a different location.

And Arpit, we are already supplying some APIs and starting materials to Carbogen Amcis from India.

Yes, exactly.

So it's an entire value chain...

So that is always -- so that's absolutely -- it's called a technology transfer, and we have to optimize the available infrastructure and facilities everywhere for cost control and effective penetration. That is always there.

And [ Vyral ], coming back to your earlier question of the revenue, I understand what you're trying to think of. And in terms of commercial, if the commercial is larger, then the sustainability increases. But even if I try to put it as I see it in a simple manner, and if you imagine that you have 10 people, right? And the 10 people initially are doing development work, which includes the validation. After the validation, the molecule becomes commercial. Two of the 10 people are allocated for the commercial activity. Now we have 8 people remaining, right? Now the capacity of the -- yes, the capacity reduces is for doing development work, right? But they are managing with the 8 people. So now with the 8 people, let us say, another molecule goes into validation and commercial, 2 more people are going to be allocated to the commercial molecule -- the new commercial molecule. Now we have 6 people, right? Now the capacity even reduces further of them being able to do the development. So that is why the mix that Mark is mentioning is extremely important. Like 50-50, is the bottom criteria. If we go below 50-50 mix, then it becomes a dangerous scenario in terms of the capacity being below underutilized when it comes to development work, manpower being overstrained, when it comes to development work or commercial work, something has to get affected because of this. So we have to keep adding.

That helps, sir. I mean what I see from your explanation of your business is like your business has a tremendous long-term potential in a sense that there is a lot of potential to then go generic as well after the molecule goes off patent. So that gives a very high stickiness to your business. Obviously, we are not into the generic part, but in case if you decide to go into it in the future, we can. If there is a possibility since -- and we can also get an early-mover advantage here.

Bear in mind what we tend to do are the difficult, hard to do things. And they tend to be smaller indications. They're not 100 million tonnes of white powder being shipped around the world. So we have a couple of products, which we've been manufacturing for years, which are already off-patent, but the cost of developing a molecule -- redeveloping the molecule and submitting it for a generic company with an indication, it's just not worth it. So we continue to make money on those, even though they aren't essentially generic, somebody could jump in tomorrow and make them. But the cost of making them for the payoff for them, it's just not there. So there's an opportunity to continue to manufacture these products. One of the products we make, we've been making for 20 units. We went off patent 10 years ago. And we're still making it.

And the volume increase as well, both becoming generics.

Yes. I still understand because eprosartan...

Yes, you have to understand, [ you get confused ].

I mean take for example eprosartan has got approved in 1996, and we were still supplying the API for it, I guess.

Absolutely.

Yes. We are the sole suppliers. Because one, it all depends on how well the customer has captured the market in terms of the patient pool that they have gathered and the trust that they have developed with the patients with the brand name that is associated with it, right? It's like leaving an Apple phone, right? If you're using an Apple product, you will not go to a Samsung. It is like that, right? Regardless of how shitty Apple makes it or not, it is still -- you are keep -- you are going to keep using it. So it is that sort of a trust that these customers develop with the patients. So even if someone is able to come out with something possibly smaller or better in a different -- with a different product for the same indication, patient pool, especially with the diseases that we are working on, they are so comfortable with what they have been using, that they will not shift to a generic brand.

I'll give you an example. I'll give you a live example of what Arpit's been talking about. Fifth bullet point on the update on CRAMS on the presentation we put out. That product 10 years ago -- 9 years ago, I was in Japan with our Commercial Director sitting down and we had a meeting with a client. And we walked out of that meeting when they said, do you know what, after all these years, and we've been developing and working with this project for quite a few years. After all these years, I think we're going to be saying goodbye to it. Customers didn't really seem to have any focus on it. They weren't predicting any growth, and they were looking at moving away on to to different therapies. One customer had a change of management. And within a year, they were ramping up sales for this product. And they found new markets for it. Now we're manufacturing -- every 2 years, we're manufacturing this extremely complex material, very expensive material. And we've got a market for it. We're not in control of that part of it. So we make for a fee. And the customer is responsible for his own registration, his own sales and marketing of this product. But sometimes things die. Sometimes, you think they're going to die, and you're wrong, they don't die. You know we were ready for generic competition on the product we started making in '96. We were bracing for generic competition. Never came.

Of course, human body is itself is complex. So sometimes things we think don't work, actually work. Okay so...

Yes. Exactly.

The next question is from the line of Jigar Valia from Ohm Group.

My question is related to the ADC anchor. Is it -- and you mentioned that it's the most complex piece in the ADC. Is it the same thing which involves having your multiple type of your plants coming up together to develop the product? And just to get a sense in terms of the complexity, is that something which makes it more complex?

No. I think it's probably -- honestly, for what we do, and I've been kind of engaged in this most of my working career in some way shape or form. These linkers are some of the most complicated synthetic molecules that -- and I'm only a chemical engineer, I'm not a chemist. And when I listen to some of our chemists and they say this is difficult, I believe them. Looking at the synthesis, some of these things are incredibly complicated and difficult to characterize. And that's why lots of customers come to us because we've built a hard one track record in this area. And we've got multiple sites that were involved in making linkers. And yes, it is noteworthy. Chromatography is another one, which is an art, almost an art, I would say, in chemistry. There's an art to chromatography. And that's becoming more and more prevalent now as a commercial route to manufacture. Twenty years ago, 15 years ago, that wasn't a commercial route to manufacturer, but now it is because drugs are getting smaller in terms of their volumes going to customers, they're more potent. Chromatography is becoming a commercial route to manufacture now. And we have a lot of capability in that area, trust me we are one of the world leaders in deployment of chromatography to solve problems. There aren't many companies that have got more capability and more expertise than we've got. We're really proud of that one. That's been a core of Carbogen since before it was acquired by the previous owner. So it's founded on that. So, yes, we have some pretty smart people, and we have some nice equipment. And that's why customers like to come to us because we've got some experience. There's not too many things we haven't seen in some way shape or form in the past. And that means we can put somebody who's really got some expertise in front of the customer, and that tends to be why customers come to us. Because we don't just stand people like me in front to the customer, unless you get a chemist, and we have the chemist to talk to the customer. And those guys really sell the projects at the end of the day. We're immensely proud of our capabilities in that area, immensely proud. But what that means is these aren't cheap people. And that's the same across the board. We've got some incredibly talented people in India and China, incredibly talented. And our game is to deploy them in the best way possible for the benefit of the customer. And then hopefully, that customer can benefit patient and that's the game here. And we want to mention money on the way. So ADC linkers and chromatography have a high talent and quality skill sets that Dishman Carbogen has on its own as their core capabilities.

The next question is from the line of [ Ashish Gulecha ] from [ Avid Security Systems Private Limited ].

Sir, my question is 2 questions, sir. One question is, in next 3 years, what is the pipeline or you should say, what is the estimate of your EBITDA or top line and bottom line, which you're targeting? Because that would be the target which you would have given to your team and as well as you yourself would be keeping that in your mind? And my second question is, are you in talks with investment bankers to basically do monetary, what you should say, portfolio monetization with respect to API of CRAMS now or in the near future?

So [ Ashish ], thank you for your question. So regarding the fourth question, taking a 3- to 5-year view, we can expect a top line growth of about 10%, 12% on a CAGR basis. EBIT -- from an EBITDA perspective, we -- our target is to move closer to 30% as quickly as possible. So that would be more or less the target for the next 3 to 5 years.

Okay. That's fair enough, sir. And on...

Sorry, I didn't get your second question.

Sir, second question, I was interested that whether with respect to the CRAMS and the API portfolio, currently or in the near future, do you feel that there can be a monetization of -- there can be, what you should say, some stake scale? Would you be interested, basically going ahead?

No. There are no such plans, I think, there is nothing on the agenda for any kind of monetization right now.

The next question is from the line of [ Ashit Koki ], an Individual Investor.

I have some basic questions. One is while due to COVID, our business has got affected. But at the same time, if you look at our employee benefit expenses, which is substantial, if you can throw some light on that.

So the employee benefit expenses, one of the -- so the largest expense or the share of the expense lies at Carbogen Amcis entities. And that's largely because most of the development work happens over there. And for that, obviously, we require people, the scientists for doing the new product development work. So now most of these costs are denominated in foreign currency, largely Swiss francs because Switzerland is the subsidiary where we have the highest amount of employee expenses. So there is a 10% movement in the employee expenses just on account of FX. So as compared to last year, roughly about 12% or about 15% is the increase in the employee expenses. About 10% is related just to the FX difference.

Okay. So going forward, how do you -- this cost increase will be substantial or the sales will be much better compared to the employee expenses?

I think on a constant currency basis, this might go up by about 4% to 5% on an annual basis. Having said that, with the new projects that we are expanding into, that will also require additional manpower. So we would have to recruit people as we get closer to the commercialization of those projects, which will be factored into the additional margins that we expect to generate from this projects.

That would be near, I mean, say, in next 2 quarters?

No, no. So the extension that we are doing, that does not come to fruition until 2023.

Okay. And with regards to, sir, Bavla plant, what is the overall contribution of Bavla plant to top line and bottom line?

So as far as the India CRAMS is concerned, usually, the revenue is -- in our normal year, which was FY '20, the revenue contribution was about in excess of INR 300 crores. This will obviously after eliminating the intercompany transactions. And the EBITDA margin would be upwards of 40% to 45%.

So FY '22, can we expect full...

Yes. As we move towards getting more operational activities in Bavla, we expect that the India operations revenue on the CRAMS side should be closer to INR 200 crores, INR 200 crore to INR 210 crore. And the EBITDA margins should be in the range of about 40%.

So basically whatever the issues which was raised by the Swissmedic on Bavla, that has been taken care of and we could be doing a maximum capacity utilization.

Well, well, the capacity utilization can be much, much higher, which we would be seeing in the years to come. The observations on the Swiss -- the observations of the Swissmedic are being addressed to. But that essentially does not impact the CRAMS side of the business. As we mentioned earlier, we have already undergone certain successful customer audits. And we have already restarted the production for some of our customers on the CRAMS side. So when I mentioned about the increase in production, this will be driven largely by the CRAMS projects coming out of the Bavla site as well as higher contribution of revenue from Naroda. So the combination of this 2 should allow us to achieve close to about 70% of our FY '20 revenues.

The next question is from the line of Deep Master from One-Up Financial Consultants.

So my first question is on the Vitamin D side. So I just wanted to get a better understanding as to the purpose of the clinical trials, given that Vitamin D as a product is sold and it's also a branded product in many markets such as India. So I just wanted to -- maybe if you could explain a little bit better on what benefit the trials bring to your product? And what the strategy would be? Would it be a branded product? Would it be a partner product and sort of which markets you would target? Will it be domestic or an export market?

I think, first of all, let me take the markets because if we're going to -- I mean our soft gel capability, I know we're just a manufacturer straightforward Vitamin-D soft gels, and we have the ability to launch those in domestic markets if we wanted to. Our focus on our trials is global markets, looking at global issues. One of them is COVID, of course, and looking to strengthening the immune system. And there is a lot of evidence to say that strengthening the immune system in COVID patients prevents them moving into intensive care. And if you do not move them into incentive care, then there's a chance that there's a better survival rate. That's what we believe will happen, and we're waiting for the sort of publications to come out and then will be clear on that. The other one is the obesity side. And again, that's a global problem. And these patients are a small subset but they suffer terribly from a very poor immune system, which means they're open to other disease because they're not metabolizing Vitamin D, through sunlight, through the skin, through the renal system. So the addition of our product well negate that problem and go straight to strengthening their Vitamin-D levels, which means that their immune system is much stronger. So those are the 2 propositions, they're global issues. And what we're hoping to do is to be able to get approval in the long term to manufacture these products. Now how we manufacture them, whether we do it through partners in various territories or we do ourselves in other territories, that's not clear to us yet. We haven't made those decisions yet. And frankly, we don't need to at this stage. It's one step at a time. So the first step will be the publication of the results. And then we'll start to look at the second step, which will be what we will need to do then for Phase III trials or what do we need to do in certain countries to get this approved. So that will be the next step. And once we see that there's a chance, then we'll have a much better understanding of how we deliver it. What I will say is that for the vitamin D business, like any product business, what we've got to do is to continue to innovate, introduce new products to freshen up the product line. Because once you've got a product, there's always somebody who wants to jump in and take some of your market. The way you attack that is not just lowering the price. The way you attack it is through innovate and introduce new products and things where customers and clients have a need. And we're constantly looking for that now. And that's become -- since Arpit's basically taken as the leader of the company, that's been the focus for us. Not just sitting back and saying, well, we've been making this for 25 years. We're the best. That's okay. But we've still got to bring new products in to excite customers. So that's been a focus for us. And that's what we're doing with that business. The Vitamin-D business is a perfect example of that, where there's a mature side of the business, but the analogs really have some interesting activity in various areas. And pharmaceutically, our Vitamin D, we've got about 40% of the market in pharmaceutical Vitamin D. But you've got to remember that the market is about 20 kilos of the world market. These are very potent products. We're not -- it's not like the feed industry where they're making many, many, many tonnes of Vitamin D to feed shrimp. We can't compete in that business. The Koreans and the Chinese and the Vietnamese have that business, and they will come through it because it's a race to the bottom. So cosmetics, pharmaceuticals is where we're focusing.

Yes. So Mark, my question, I understand the indication. My question was more about if the trials are successful, does that give us sort of any edge on actually getting our Vitamin D approved for these treatments? And then would it all -- does that not automatically enable your competition to also use their products for the same indication? So what's the edge we get with the trials? I'm just trying to understand that, is there any patent protection? Is there some specific formulation that we develop, that will be hard to kind of get around in terms of patents?

Yes. I mean the COVID one is going to be a huge one. And even if we capture the entire COVID market, we wouldn't have the capacity to manufacture. So we've got to be realistic. But on the other side, with these niche indications, such as obesity, if we get a march and we get in there first and quickly, then there's a chance you're going to be able to dominate the market a little bit because you're first. So that's our proposition is not to go for these massive indications where there's tons of competition. But to look around and say, where are the patients of need which are completely unmet because big pharma doesn't see them as a market. Well, big pharma's cost base is very different from ours. So we might see that there's an opportunity there for us. And most importantly, we're treating patients, people who are suffering, which is another philosophy that we go up to over the last few years of the business. I mean what we do is helping people. And if we can help people and make some money, then that's a really good thing to do. So that's where we're focusing. So we're deliberately not going into areas where there's been a big tons of competition. Now one of the big players in Vitamin D is a company called Garden, the Chinese. They're probably not going to get worried too much about little old Dishman Carbogen Amcis, serving a subset of may be 250,000 patients of some kind. Maybe they are, maybe they don't. But our strategy is to be going look at those niche indications because there's less competition there and there are patients that are going to get no help in big pharma.

Sure. And my second question is just a clarification on Bavla. So from what you say, it seems that you were largely done with the remediation. And now it's just a matter of getting customer approvals once we get approvals from their local authorities. So is that understanding?

Yes. How it would work would be that, first, we are talking -- so we are -- or on a daily basis, talking constantly with the customers and as the needs, and they are constantly discussing with us of the kind of stock we have remaining and by what time they will require the products and -- et cetera, et cetera, to try and figure out what is the best time line to fit them in, in for the production of their molecules and in which facilities was it being made. So what has happened is that due to EDQM, all the facilities in the beginning we had to shutdown completely. Then with the remediation plan according to which we are catering to the CAPA, majority of the issues that were raised by the EDQM, we have made a remediation plan for each and every plant, not altogether but for the first plant and then we did the remediation plan and then the first product went in that plant after being a remediation plan. Then the other customers, we started to talk to them. And as and when we started to get the green light from the customers, we evaluated the plan that it was being manufactured, and we did the remediation plan of the second plant. Similarly with the other customers, where we are going to be opening up -- slowly and steadily opening up one by one plant, one of every other. It is not that we do the remediation plan for every plant together, and then do it. We are doing it customer-specific, product-specific, SOP-specific remediation plan for -- to ensure that when the EDQM comes, there are not going to be any challenges when they audit this. It is not as simple as just opening because the customer has gotten the approval, we open the plant and we start manufacturing without a doubt. No, because the plant shutdown was due to the result of the audit. We have to make sure that we are taking all the necessary precautions as to when the EDQM does come for a proper general audit, what we do right now is not going to affect the customer or their supply in the future.

Understood. That's very helpful. And just lastly, I just wanted some further understanding on how the mix of business could look in the near to medium term, say, in the next 2 years, given that we have a large -- a much larger pool of drugs that are potentially -- that has the potential for commercialization. And many of them could be large ADCs, which could be in a multi-million dollar opportunities for us. So does the mix potentially tilt a little bit more towards commercialized molecules in the near to medium term?

In the near term, yes, for sure, because there will be a rise in uptick. So if you are just comparing by the revenue specific items, then in the near term, you will see an uptick in the revenue due to the commercial molecules increase in volumes. But that uptick will have to be then worked on to make sure that we are increasing on the developmental revenue as well. So in the mix of -- the overall revenue will go up together on the development and the commercial, not together at the same time. But eventually, the development revenue will have to match in terms of the percentage of the mix, which was explained by Harshil and Mark and myself again of the bare minimum of 50/50. So basically that will enable you stay -- sorry.

Well, it's the cycle. It's a cycle. If you go back 2000, okay, we had a lot of production capacity. And we couldn't fill it because we didn't have enough development chemists. So we brought more chemists in. And over the next 5 to 8 years, we filled that production capacity. At that point, we needed to start to think about creating some more production capacity. So we did some modifications and things. This is pre Dishman acquisition. When Dishman acquired the business, we have just finished doing some additional development expansion, okay? So over the past sort of -- I don't know, Dishman has acquired the business now 15 years. So in that 15 years, what we've been doing is we've been doing incremental small increases in capacity for production and development. We are now at the point where we have done pretty much everything we can do to squeeze in more production capacity, okay? Now we have to expand. And we preannounced, I think -- when did we do that announcement on the 2 large projects, Harshil bhai?

You mean on the ADC?

On the expansion for the new line projects and...

Oh the expansion, that was in August or September. Yes.

August or September. So what we need to do now is to increase -- do a proper increase in our production capacity based on our pipeline. And what we've always -- and we could be criticized, okay? Quite happy to be openly criticized that we should have been more predictive. But the problem is with this business is we look at 16, it could be 8 , it could be 5. I don't think it could be 5, but it could be. So we have to be cautious because building capacity is expensive. So what we've done with lots and lots of incremental changes. So 4, 5 years ago, we bought a building. We fitted it out with some additional capacity for development. That enabled us to fill our manufacturing capacity and pipeline capacity. But now we're full again. So we have to have more production capacity. So it's a cycle. So the next cycle now is we've got some incremental projects that I said we're doing right at the start of the discussion. And in 3 years' times, 2 to 4 years' time, we'll have a large facility completed, and that will be just about in time to go with commercial volumes with a number of these projects, and it's a weighted assessment. Because we're at that point now where we have so much confidence that a number of these projects are going to go commercial because the pipeline is so strong. We either have to invest or we have to accept the fact that we're going to lose some of these projects, and we don't want to lose them. And then maybe 3 full years down the line, we're going to have to add more development capacity again, like keep the production capacity moving.

So Mark, I should say, the amount of -- we have about INR 200 crores of WIP in the balance sheet now. So is a large part of that for us ramping up our production capacity? And is that coming up in Switzerland, if I'm understanding correctly?

Yes. So most of it is related to the expansion in France and Switzerland.

Understood. So basically, if I understood this correct, as our mix sort of tilts towards more commercial molecules, we will also -- we'll free up some development capacity, and that will enable us to kind of take on more projects. And over time, the mix will kind of tilt back towards 50-50, which let us through that cycle.

Yes. 50-50 is the ideal. It -- yes, it's the ideal, goldilocks and the 3 bears is just right. But the reality is that it jumps between 40-60 and 60-40. And we're not uncomfortable at that range. If it drifts outside that range when we start to get worried. So that's one of our key metrics we look at, which is the commercial development. That's a key metric for us.

The next question is from the line of Sanjay Chaudhary from Tata Capital. [Operator Instructions] We'll move to the next question, which is from the line of Sajal Kapoor from Unseen Risk Advisors.

So a question regarding our consolidated fixed asset turns. So when we look at our Lonza or the Catalent, the typical asset turns are in the region of 1 to 1.2, as both the CapEx and the OpEx are higher -- much higher in developed markets than relative to, let's say, India, China. So given the fact that majority of our asset base is outside India, Europe, mainly, what kind of fixed assets terms that is we normally aim for? So for example, if you deploy 100 million in Switzerland and France in the gross block, what the sort of target sales we can achieve when fully commercial? The reason I'm asking is because my sense is that for the -- for any CDMO player like Lonza, Catalent or even Dishman Carbogen, where the majority of fixed assets is outside India, it would be difficult to achieve an asset turn greater than 1.1, 1.2 when fully commercial.

Yes. So you're absolutely right. So the way to look at the capacity that we put in and the result on fixed asset block is to have the divided between India and the overseas entities. So overseas, since most of the work or at least 50% to 60% of the work is allocated to development versus commercial. And if you make a comparison to, well, Lonza would be quite big, but even some of the other players in the European region, and we actually did that. We have seen that the asset terms are close to about 0.6 to 0.8. So it would be difficult to imagine an asset turn greater than 0.8 as far as our overseas entities are concerned. Having said that, as far as the current expansion, which will happen in France is concerned, which would be on the -- largely on the commercial side, we do expect that the asset turn could go up to around 1.1 or thereabouts. As far as the India capacity is concerned, as we keep on filling up our existing capacity with more products on the CRAMS side, we can see an asset turn of close to about 1.5 to 1.75. So on a consolidated basis, I would say it could be close to about 1 to 1.1 as an average.

Yes. So Harshil, I completely appreciate that. So if over a period of time once the molecule is commercial and it's stable and we do a tech transfer from, let's say, Switzerland to India, is it not fair to expect an asset turn of somewhere between 2 and 3 in complex intermediates and API? Because if you look at Suven Pharma or any other player who is into mature molecules that are patent protected. So I'm not talking about the molecules that has just gone commercial because the ramp-up takes 3, 4 years. But I'm talking about the molecules that are commercial over the last 5 years or so, so they start gaining traction in the market. And then what we are seeing is that companies like Suven Pharma, they typically get an asset turn of 2.5, maybe 3 as well in those sort of specialty molecules.

So Sajal, the kind of void that we do, it's largely for the NCEs as compared to generic. So yes, I mean, even if you look at India, we also have certain development projects that we do out of India. So not all of the capacity is going to be devoted just to commercial. Yes, the thought is very clear to get more projects into India, but that would take time to fill up the entire capacity that we have between Bavla and Naroda. So that is number one. Plus, what you also need to factor in is that the expansion that we are doing now, that would kind of last for the next maybe 6, 7 years. And maybe in the fourth or fifth year, we would have to again start thinking of additional capacities, assuming that our development pipeline is extremely strong, we still see that there's been a lot of new projects that could be commercial. So having said that, not all of the CapEx could be put to use at a particular point in time, there would constantly be a CapEx that would be required for the next phase of growth. Hence, on a consolidated basis, taking into account all of these factors, I think around 1.1 is kind of an ideal turnover ratio for our particular business.

We'll take our next question from the line of Jigar Valia from Ohm Group.

First is a follow-up to the previous question. So just to clarify that, while asset turns could be lower internationally, is it fair to assume that the win rate or the strike rate is a little better with regards from clients or regulators?

Yes. You mean in terms of getting the projects?

Yes.

In India?

No. Just getting the -- trying to do a project. So having a capacity -- so I'm looking at the capacity that will be coming up in France or Switzerland and versus Bavla. So while Bavla may get better asset turns, but it's probably a more likelihood of striking a favor of the client if you have a facility in Europe? Or with the regulator itself, given especially the regulator?

So in terms of getting the business from the customers, yes, our strike rate and -- Mark, you can also elaborate on that. Strike rate has been pretty good. And as we have also mentioned in our presentation, we are seeing a significant increase in the number of inquiries over the last 2, 3 quarters, which has increased by almost 11% as compared to what it was earlier. So I think from inquiry to project conversion, our strike rate has been quite good as compared to the industry. And that is one of the reasons why we have so many molecules for development across different phases plus about -- I would say about 70% of our business would be repeat business from the customers. So that also helps a lot because of the strong relationship that we share with our customers.

Understood. So the selling proposition with regards to Bavla plant would be diversification rather than cost out of the project, cost saving annually?

We believe ourselves as being customer-specific, actually. What happened is -- so even historically, if you see we make many of the key starting materials and intermediates for our facilities in Switzerland and Netherlands is more to do -- so one is to do with debottlenecking the facilities to allow net investments to take place or a net quantum of investment to take place. But if that option one, if that is exhausted, then what happens is also the customer is requiring, one, if the molecule is launched, the prices would be at the highest value or the highest per kilo value, which eventually would -- as the volume goes up, the customer would require it to be wanting a bit more discount or concession. I think the facility in Switzerland, for example, which are all CGMP facilities, to make something which is not a CGMP step is actually spending a lot of resources on something which is not required. So that step comes -- if that sort of step comes to India, then that not only saves up the CGMP capacity where Switzerland can do more molecule, which then will allow them to give -- reduce price to the customers, provided that the customer agrees that this goes to [ EF ] for non-GMP manufacturing kind of a scenario. And if the customer further wants a conversion, then what we will have to push is to -- is that -- then we will have to get some of the CGMP work of the API also done in India, which is as equal or even better facility than the current facility of Switzerland, if Switzerland was responsible to make the facility in India, they have made it better than from what the experience that they've gained of the oncology facility. So the customers are well aware of this transition of what is required in terms of when they desire a lower -- or a discount on their molecules where we start to push them to start coming to start doing joint kind of manufacturing between India and Switzerland. That is the kind of direction that this company is heading to where Switzerland become a kind of the front for doing the development work, early phase work, development work, even for -- in some aspects for transferring to India eventually after doing the validation and tech transfer. Therefore that we need enough and more molecules to be made there. All said and done, if it is a low-volume, high-value product, the customers will not be fully convinced to go out of Switzerland. If the volume is increased, and it is beyond the capacity for Switzerland to manufacture, then it will, for sure, be coming to Switzerland -- or, to India.

Very well, sir. Sir, my next question is a follow-up to my earlier question on the linker. Unfortunately, I got dropped off right after asking the question, but I'll look into the transcript. Now my question is, so you're very strong on linker side and you break on the cytotoxic side and the onco side. And then we have some reasonable listing on the mAb side. You also mentioned that while we slightly weaker as compared to peers on the mAb side, but we can do the conjugation piece. So is conjugation also very complex and difficult? And do we have any growing corporate capabilities on the finished product side?

I think it is all -- it works. It's 2 fish of the same pond. So linker is the most complex piece. I made it in a analogy, which I may regret in the future. But the later it will get back. Let's think of it as a scenario of a suicide bomber, right? A suicide bomber is there and he wants to go to bomb a parliament or somewhere or PMO office or something like that. For that he needs a car and he needs a bomb. And he himself is a linker. So now this bomber needs to be highly intelligent, highly complex to go inside the PMO office or inside parliament with the bomb on his back to ensure that he's going inside undetected, have a communication, sit next to the Prime Minister, et cetera, et cetera, and then take out the back and bomb himself. This is how complex the -- this is an analogy that it could -- best come to mind to us in terms of how complex linker is. So linker complexity is the most complex piece, then comes the conjugation, where we are already one of the top players in making the payload or the bond for that matter when it comes to executing the cancer cell. We can make the payload in a certain way, which gets attached to the linker. So what happens is that the linker will then -- it has to drive the CAR to the specific location of where the cancer is. And then delink itself on that same location for the payload to go off.

Understood, sir. Okay. Next is, so you alluded to a lot of licensing deals happening within the ADC space. So that -- is it that somebody having all the capabilities on cytotoxic side, on the linker side, mAb side, conjugation side. If pieces -- blocks are missing, then also the deals can happen or having everything in one place is actually remains a very significant advantage to any player?

Well, the licensing thing that happen are really the customers' preferred option, but what really these customers do is that how they -- how and why they license out in the first place is due to the players like us, where they get the development done. So they might work on the initial development and then they would let us say, a development on paper, that this is how it should look, whether it is possible to be done or not, and they would come to us. And then we would be putting our chemists on it, whether it is possible to be made. And if it is, then we would supply some material to the customer, they would do the clinical trials and then move -- and then do their patenting, where after that, they would license it out to other players. So the customer -- many of the customers who are doing the licensing deal, they don't really have in-house manufacturing capabilities or expertise. So they -- not all, some do, for sure, but not all. So they rely on CDMOs like us to do this sort of work for them in this case, when the complexity is high. And even otherwise, even to be able to get everything done from -- at a single location is always going to be lucrative for the customer because if you think about it, if you have to get a linker from one person and payload from the other person and conjugation done by the third person, where the antibody is coming from the fourth person, then it will be a -- the scenario like Airbus. I'm not sure if you are aware of that incident that what Airbus had to do is to get the components made in different parts of the -- in different countries, different components were made and all components would then be brought into France and then put together. And when that's a time came to do that, nothing fit together, right? The chances of that Airbus kind of a scenario increases. So of course, when there is a race to come out with such molecules as quickly as possible, to have a one-stop shop for the entire tool is always special. Antibody, we don't make and hence -- but in the case of antibody, it is not considered to be a one-stop shop position because the antibodies will not be the complex part. The antibody is just a car that needs to drive to a specific location where the experts are already there, and they are making it. So we in that also, we help the customer evaluate that antibody, which is specific for the indication and then help them do the conjugation. So all of this, there is a lot of documentation that needs to be done, a lot of analytical support during the clinical trial, et cetera, et cetera, that needs to be done. So if we do it from different companies, would be able to create a name. And if it is a single company, which is all joint -- which are all having the same people, working on this together the flow of documentation in terms of regulatory, et cetera, et cetera, is also very -- the flow becomes much smoother for them. And that is one of the major reasons for which we are expanding well into our conjugation capabilities, where one of the things from there is to do contract conjugation. So essentially, what will happen is that Dishman will become a one-stop shop for your entire molecule, right, from the clinical levels to the formulation of the molecule from the Phase I, Phase II levels and to manufacture the formulated molecule for the entire packaging. So -- and we will possibly be the only company to be able to do that in the whole world.

That's really heartening. So which all plants get involved with regards to linker and conjugation?

The linker and the conjugation happens in France because it's a conjugation piece, but the linker is developed in Switzerland -- developed and manufactured in Switzerland.

Perfect. Sir, just last question from my side. Just a clarification that the full-scale ADC IND file with FDA and the approval, that's for our clients, right? It's not our own filing, right?

We are not going to on filing, and we have 4 plants. That is correct.

Hello? Can you hear me?

Yes. Yes.

Am I audible?

Yes, yes. Yes, Mike.

Sorry, I got dropped out of the call. I've been trying to get back in. Sorry, could you repeat the question very quickly.

Yes. My question was the full-scale ADC IND filing and the approval is for a client, right? It's are not on IND filing. And we don't intend to get into IND filings or at some point in time, we may have some plans to diversify some clients?

We may have some plans to do that, but no, this is -- the main focus is it's contract research and manufacturing. Yes. So it's a customer.

Got it. And if you get into own IND, then it would be monetizing it, whatever Phase I/Phase II some -- at some point in time?

Yes. If we get into an IND, then, it depends on what the indication is. It depends on the patient population. We have to do a full costing of -- cost-benefit analysis of it. But that's not in our heads right now for medicinal, but we are looking at conjugations for other products, but not for the distant products at the moment.

As there are no further questions from the participants, I now hand the conference over to Mr. Arpit Vyas for closing comments.

Thank you all for joining the call and for your valuable questions, and of course, for your undying support for the organization. The kind of questions asked, we must say that we really enjoyed it at this time it was pretty challenging of the mind, which is what we like. And we wish to continue in the same mode for the next call as well. Until next time, please keep safe -- be safe, take care of their families and with all our heart and well wishes for all. Thank you, and have a good day.

Thank you.

Thank you.

Thank you. On behalf of Dishman Carbogen Amcis Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.